China, the world’s largest wheat producer, is facing a severe drought in areas of the North China plain that account for 67% of the country’s wheat crop. China’s wheat production fell to 114.5 million tons in the 2010 harvest from 115.1 million tons a year earlier. This year the harvest could drop another 4 million tons.

This is a big deal since China is also the world’s largest consumer of wheat and accounts for about 17% of global wheat consumption.

The government is working to provide additional irrigation to mitigate the drought.

In Western Australia—across the continent from Australia’s worst floods—drought has put the wheat crop in Australia’s largest wheat producing state in doubt. The impact of the decade-long drought itself is intensified by a battle for Western Australia’s scarce water supplies between farmers and miners. There are about $170 billion in new mining projects on the books for the next five years. All those mines need water to help dig out and process ore, to remove waste rock and to suppress dust. Mining is already the largest user of water, taking 27% of licensed water, compared to 22% for agriculture. Six years ago the proportions were reversed with farming getting 37% of water and mining 26%.

I think you can see where I’m going with this, right?

No, no. Not more about the increasing global squeeze on food supplies. I’ve dealt with that quite enough recently, thank you. (See my posts http://jubakpicks.com/2011/01/14/food-prices-are-back-to-2008-peaks-here-are-10-stocks-that-tap-into-the-trend/ and http://jubakpicks.com/2011/02/01/egypt-has-escalated-the-food-crisis-and-shifted-global-economic-policy-on-inflation-too/ )

This time I want to talk about water scarcity, the trend that everyone sees but that it is so difficult to invest in. Read more

Update Potash of Saskatchewan (POT)

In a presentation at the Bank of America/Merrill Lynch Global Industries conference on December 15, Potash of Saskatchewan (POT) offered a modestly optimistic view on potash fertilizer demand for 2011—and a very bullish view for global agriculture.

Potash first.

The company affirmed its guidance for 2011 of sales of 9.3 million metric tons. That’s roughly at the low end of Merrill’s projected global demand of 55 to 60 million metric tons in 2011.

The company said that it had seen a strong fall season in North America and believed that most of the fertilizer it sold went directly onto fields rather than into inventories. That should produce strong sales in the spring application season in 2011.

In China inventory draw down has been completed and the company expects consumption in 2011 to return to the 11 million metric ton level that the industry saw before the global economic crisis.

Nothing has convinced the company that it needs to invest in a new Greenfield potash mine. With current capacity, Potash can produce 12 million metric tons and expansions of existing capacity would take that up to 17.1 million tons by 2015. To justify a Greenfield project, Potash said it would need to see roughly a doubling of prices from the third quarter levels.

That should be reassuring to competitors who are building Greenfield mines or expanding existing sites.

Potash was actually much more bullish on global agriculture in general than it was on its own markets. Read more

This week or next will see a bid from China for Potash Corp. of Saskatchewan (POT), Canada’s Globe and Mail is reporting.

The newspaper’s sources say Beijing is now deciding which of the proposed bids from China’s state-owned companies it should back. Pending Chinese national holidays beginning on October 1 argue for a decision this week or next.

Among the Chinese companies interested in topping the $38.6 billion bid by Australia’s BHP Billiton (BHP) for the Canadian fertilizer company are, according to the Globe and Mail, the state-owned chemical group Sinochem, which has proposed paying as much as $60 billion, and China Blue Chemical, a division of China National Offshore Oil Corp.

A Chinese bid has become more likely in recent weeks, in my opinion, as news reports have confirmed China’s swing this year to a corn importer from previous self-sufficiency in corn, and as the price of corn has climbed to $5 a bushel on forecasts of a slightly smaller harvest in the United States. Read more

Update Potash of Saskatchewan (POT)

Listening to the Potash of Saskatchewan (POT) conference call today, July 29, I kept thinking that some one was going to yell, “Cue the plague of locusts.”

In Russia grain production will fall by 20% because of drought, the company said. Canadian wheat production is forecast to be down 20% because of flooding during planting season. In India, after a string of bad harvests from insufficient monsoon rains, too much rain is rotting crops in storage.

The company forecast that China will have to import about 75% of its soybean needs in 2010 and 1.7 million tons of corn. India could hit record levels of grain imports.

Food commodity prices are likely to rise as 2010 goes on and next year, so farmers in countries such as Brazil and the United States that did have good harvests to export should have plenty of cash to increase purchases of fertilizer.

That will make 2010-2011 a tight year for fertilizer supplies. Read more

Sell Potash of Saskatchewan (POT)

So was that good news or bad news that Potash of Saskatchewan (POT) announced this morning, April 28?

For the first quarter of 2010 the company reported earnings of $1.47 a share and revenue of $1.71 billion. Both numbers beat Wall Street projections of $1.32 per share for earnings and $1.48 for revenue.

Clearly good news.

But then the report gets confusing. Read more